Minimum Wage Increase is Another Blow to Small Businesses

minimum-wage-increase

As if small business owners didn’t have enough to contend with in the coming months, like the looming threat of tax increases and healthcare reform, small business in 10 states saw an increase in their minimum wage requirements on January 1 of this year.

Though the federally mandated minimum wage will remain $7.25 per hour, the increases – ranging from as little as 10 cents per hour in Missouri to as much as an extra $1.00 per hour in the city of Albuquerque – will likely have a dramatic effect on small businesses.

Obviously, an increase in wages could add significant costs for small businesses with a good amount of hourly workers that fall below the minimum, but it could also mean necessary increases for those workers that fall just above the new minimum too.

Even for small businesses in Arizona, Oregon, Montana, or Ohio, where the rate jumps just 15 cents – the added cost could mean nearly $10,000 additional dollars per year for businesses with 30 full time employees.  With the added costs of healthcare reform, that extra $10,000 could very well be too much to bear for some businesses – leading many owners to cut employee hours or to cut some positions altogether.

The plus side?  There will not be a shortage of lenders, like Direct Capital, willing to lend to small businesses in 2013.  A loan like a working capital loan* could be just the thing a small business owner needs to make up for some lacking cash flow or to help offset some of those big hits to their bottom lines.

Are you operating in one of these 10 states?  How do plan to deal with the increase?

*Working capital not available in the following states: AK, DE, ND, VT


2 Comments on "Minimum Wage Increase is Another Blow to Small Businesses"

  1. Doug January 4, 2013 at 2:21 pm ·

    Excellent article Sherri. Employers make hiring decisions based on the cost of the labor vs the benefits the employer gets for the labor. The benefits the employer gets, in turn, are based on the skills of the employee. At the lowest skill level (where minimum wage is most often paid) employers often have a number of alternatives: not hire, utilize more automation etc.

    A minimum wage is nothing more than a price floor and most all economists agree on the outcome of price floors (they are bad). A government can not, by law or otherwise, suddenly make a low skilled employee more productive to the employer simply by forcing the employer to pay a higher wage. The outcome of such a law is to increase the bar on the hire vs not hire decision of the employer. Should the employer decide not to hire due to the costs, the law has created unemployment.

    True, some employees would benefit from the higher minimum wage but they do so only at the cost of the unemployment created by the minimum wage law. The sad part of this outcome is that those with the lowest skills are most likely to be effected by the unemployment created and as such are denied the right to work at even a modest wage in an effort to have on the job training and improve their skills.

  2. Sherri Starcher January 4, 2013 at 2:32 pm ·

    Thanks for your comment, Doug. A 10 cent increase may seem insignificant, but for many businesses it could mean the difference between staying open, or letting employees go… or worse, shutting their doors entirely.

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